Ethereum Price Drops 10%, Potential Factors Include China ICO Ban

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For the first time since August 20, Ethereum price dipped below the $300 mark, to $295 as the market cap of Ethereum plunged by $6 billion in a single day. Earlier today, on September 4, price of Ether dropped by 10 percent after showing some signs of recovery.

Last week, the People’s Bank of China (PBoC), the central bank of the country, abruptly announced its intention to regulate the initial coin offering (ICO) market and investigate into ongoing ICO campaigns. Some sources reported that the PBoC was looking to suspend all existing and upcoming ICOs in order for the institution to closely evaluate the legality of ICOs based on the country’s financial regulations and policies.

This morning, major publications including CNBC, Bloomberg and Reuters revealed that the PBoC has officially decided to declare ICOs illegal and launch full investigations into 60 large-scale ICO platforms in the local market. Sourcing Caixin, the Beijing-based media group focusing on the Chinese finance sector, reports noted that the Chinese government described ICOs as an illegal fundraising tool and requested banks to reject any business operations with ICO-related or backed companies.

In cooperation with China Securities Regulatory Commission, China Banking Regulatory Commission and China Insurance Regulatory Commission, PBoC released a statement as a warning against emerging ICO campaigns and financial institutions participating in “illicit financial activities related to ICOs.”

But, a few analysts including Shanghai-based fintech consultancy Kapronasia Director Zennon Kapron remain optimistic about the long-term growth of the Chinese ICO market. In an interview with Reuters, Kapron noted that he believes the Chinese government’s recent efforts to crackdown on ICOs is the first step it is taking to regulating the market. He further emphasized that governments are struggling to understand the basic fundamentals and concept of ICOs and that the suspension on ICOs is likely temporary.

“Regulators globally are struggling to understand what ICOs are, what the risks are, and how to ring-fence and regulate them. China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them… I think it will be slightly a temporary measure,” Kapron said.

ICO remains as Ethereum’s largest use case and market. It has driven more than $1.6 billion in investment within less than two years, since early 2016. Hence, any negative ruling on ICOs by major government entities and economies like China will likely result in the decline in value of Ethereum. However, it is equally important for investors and traders to acknowledge the entire cryptocurrency market’s correction in the past two days.

Almost every single cryptocurrency listed on global bitcoin exchanges and trading platforms such as bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple, NEM and Ethereum Classic experienced large losses in value.

In the mid-term, the upward momentum of Ethereum should be sustained due to the Ethereum Foundation’s collaborative efforts in leading the Metropolis hard fork, which is expected to drastically enhance scalability and privacy for both Ethereum users and developers. More to that, various innovative solutions such as Plasma, co-authored by Ethereum co-founder Vitalik Buterin and Lightning Network developer Joseph Poon, are to be integrated into the Ethereum network in the upcoming months.

Evidently, the announcement of the US Securities Exchange Commission and the People’s Bank of China have had tremendous impact on the global ICO market. But, like Australian startups previously moved to Hong Kong and Singapore to avoid impractical and opaque regulations, blockchain projects and ICO-running startups will likely move to other regions such as Switzerland and the UK that offer friendly regulatory ecosystem.

Featured image from Shutterstock.

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